Friday, April 20. 2012

What may be the most important event of the year for investors will not come from the Federal Reserve or the European Central Bank. It won't even be the U.S. presidential election.

It will occur at the 18th National Congress of the Chinese Communist Party this fall, when nine people step onto the platform at the Great Hall of the People in Beijing.

These nine will comprise the Standing Committee of the Politburo, the most powerful political body in China, and they will rule the world's second largest economy for the next decade.
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At stake is how much China is ready to reform, both economically and politically. That will affect us all as China's growth engine has powered the world in recent years.

... let's hope this purge and power struggle result in real reform, which would be good for everybody. But let's not get our hopes too high. In China, the more things change, the more they stay the same.

Thursday, December 15. 2011

Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc from its peak in 2008, almost as much in real terms as Wall Street from 1929 to 1933.

"Investors are massively underestimating the risk of a hard-landing in China, and indeed other BRICS (Brazil, Russia, India, China)... a 'Bloody Ridiculous Investment Concept' in my view," said Albert Edwards at Societe Generale.
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"The BRICs are falling like bricks and the crises are home-blown, caused by their own boom-bust credit cycles. Industrial production is already falling in India, and Brazil will soon follow."

"There is so much spare capacity that they will start dumping goods, risking a deflation shock for the rest of the world. It no surpise that China has just imposed tariffs on imports of GM cars. I think it is highly likely that China will devalue the yuan next year, risking a trade war," he said.
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The economy is badly out of kilter. Consumption has fallen from 48pc to 36pc of GDP since the late 1990s. Investment has risen to 50pc of GDP. This is off the charts, even by the standards of Japan, Korea or Tawian during their catch-up spurts. Nothing like it has been seen before in modern times.

Saturday, November 12. 2011

The Chinese fixed-asset investment boom of the past decade has been unprecedented. While all low-income countries have required outsize capital stock additions to make the leap to middle-income status, China's current boom is unmatched by anything on the record books. In fact, by some measures of physical capital, China already looks more like one of the world's leading developed economies, rather than the middle-income economy it is. We don't believe China can continue to rely on building more skyscrapers, highways, and manufacturing plants to sustain the kind of GDP numbers its citizens and global investors have grown accustomed to. In the next 10 years, the onus for growth will rest on Chinese households: their willingness and ability to consume. If consumption fails to grow at a rate well above historical norms, the economy may be able to muster only 5% growth at best, a far cry from the 10% average from 2001 to 2010.

... given the immense investments made in the past decade, consumption has a lot of catching up to do. Even if the massive capital additions have correctly anticipated the consumption growth we'll see in the decades to come, the economic rationale for further outsize capital outlays grows increasingly weak with each passing year. Any nation, even a rapidly growing one, needs only so many airports, highways, high-speed rail lines, and luxury apartments.

One red flag is the vast number of vacant homes spread through China, by some estimates up to 64 million vacant homes.

We've tracked down satellite photos of these unnerving places, based on a report from Forensic Asia Limited. They call it a clear sign of a bubble: "There's city after city full of empty streets and vast government buildings, some in the most inhospitable locations. It is the modern equivalent of building pyramids. With 20 new cities being built every year, we hope to be able to expand our list going forward."

Monday, May 12. 2008

One of the worst earthquakes in decades struck central China on Monday, killing nearly 9,000 people, trapping about 900 students under the rubble of their school and causing a toxic chemical leak, state media reported.

The 7.8-magnitude earthquake devastated a hilly region of small cities and towns. The official Xinhua News Agency said 8,533 people died in Sichuan province and more than 200 others were killed in three other provinces and the mega-city of Chongqing.

Monday, July 30. 2007

... the United States should prepare to adjust to an East Asia in which America is no longer the single most important influence on regional security matters. No matter how successful its efforts to counterbalance the rise of China's military power, the United States cannot prevent that rise. That means America must accept the reality that, for the first time since the end of the Cold War, it will no longer be the sole major military power in the region.

While the United States will be viewed by most countries in East Asia as less threatening than China, those countries will want to maintain good relations with both major powers and resist any attempt to force them to align with the United States at the expense of China. Even the United States will be compelled to take Beijing's reaction into account before making any decision that affects regional security issues.

China and the United States are not foreordained to clash with each other. With skill and luck, America can adjust to the rise of Chinese military power and avoid conflict until China has made the inevitable but perilous transition to become a peaceful democracy. China's military power is coming on fast, though, and the United States needs to begin taking steps now to prepare for China's emergence as a major regional power.

Tuesday, March 6. 2007

In what can only be described as great news, China is set to restore the private property rights that were abolished in 1949 under Mao, when the Communists took over and nationalized the country's assets.

The liberalization of the Chinese economy since the 70s has unleashed the biggest economic boom in history -- to the point where 65% of the country's GDP now comes from the private sector.

Restoring private property rights is a huge new step in a great direction for China.

China is set to take another giant stride away from Maoism this week with the passage of a controversial bill to protect private property. The proposed law - the first of its type since the Communists seized power and nationalised assets in 1949 - will be submitted to the National People's Congress, which opens today, despite fierce resistance from leftwing politicians and academics.

Old-style Marxists oppose the property rights bill, which they warned would worsen inequalities in society and legitimise the theft of state assets by corrupt officials.

But in a sign of the growing influence of the private sector and the middle class, the government has decided to press for the enactment of what officials describe as a basic law for the market economy. The law is almost certain to be passed. The parliament, which meets for only a few days each year, has never rejected a Communist party-backed bill or budget in more than 50 years.

Monday, March 27. 2006

That was the reaction of Mike Belsito, a member of United Auto Workers Local 652 in Lansing, to last week's agreement to offer buyouts of between $35,000 and $140,000 to factory workers at General Motors and its spinoff, Delphi. You can sympathize with his sense of shock. But actually it was pretty clear 25 years ago what was going to happen.

In 1979, after all, Chrysler had already been forced to run to Washington for an emergency bailout. By the early 1980s Ford was reported on the brink of bankruptcy. And the long ugly slide in GM's market share, from nearly half of U.S. car and truck sales to less than 25 percent today, was well under way. The ranks of the United Auto Workers, once the aristocracy of the labor movement, had begun its decline from a high of 1.6 million workers to 600,000 or less today.

But news travels slowly inside the intellectual, social and economic bubble known as the welfare state -- of which the UAW was a leading architect in both the public and private sectors. Even now many UAW members consider a job in the auto industry a sort of property right.
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The same welfare state mentality was leading to an even bigger calamity in government. Detroit, remember, was going to be the "Model City" of Lyndon Johnson's Great Society, the shining example of what the "fairness" of the welfare state can produce.

Billions of dollars later, Detroit instead has become the model of everything that can go wrong when you hook people on the idea of something for nothing -- a once-middle-class city of nearly 2 million that is now a poverty-stricken city of less than 900,000.

Sunday, February 5. 2006

China has the “greatest potential to compete militarily” with America in the future, but the US is also increasingly worried about Russian arms sales, the Pentagon said in major review of military priorities.

Underscoring mounting concerns about the rise of China, the highly anticipated quadrennial defence review [QDR] focusses on the potential future threat from a Chinese military build-up that “already puts regional military balances at risk”.